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eSilicon eyes acquisitions to drive growth

Posted: 09 May 2008 ?? ?Print Version ?Bookmark and Share

Keywords:eSilicon strategy? business growth? strategic acquisitions?

Fabless ASIC vendor eSilicon Corp. continues to push the leading-edge in ASIC designs and is building up a portfolio of intellectual-property cores. It has also taken its first steps on the acquisition trail by buying Sweden's SwitchCore AB, a provider of Ethernet switching chips.

At the time of the acquisition late last year, SwitchCore was at or near bankruptcy. The company's latest product was late to the market, and Switchcore was simultaneously embroiled in a lawsuit with EDA vendor Synopsys Inc.

Instead of liquidation, SwitchCore decided to settle its suit with Synopsys and subsequently sold its assets to eSilicon for about $3 million in cash. The deal could boost eSilicon's bottom line; SwitchCore's products could generate sales from about $800,000 to $1.7 million a year, according to the company.

Despite the acquisition, eSilicon has no plans to migrate away from its fabless ASIC business model. It will not become a supplier of standard chip products, said Jack Harding, president, CEO and chairman of eSilicon, in an interview at the company's headquarters.

ESilicon has no plans to develop new versions of SwitchCore's products. The fabless ASIC house will continue to support SwitchCore's existing products and customers for a ten-year period, Harding said.

Seeking opportunities
Going forward, eSilicon is looking for similar types of opportunistic acquisitions, which mainly involve troubled or cash-strapped companies that are seeking a "soft landing," he said.

There are many startups that are in financial trouble in the market, but the boards or venture capitalists "don't want to shut them down," he told EE Times. Instead, they ''are looking for soft landings for the walking wounded."

The acquisition of SwitchCore is part of a new and expanded strategy for eSilicon, one of pioneers in the fabless ASIC business. Last year, eSilicon was the world's largest ASIC fabless house, with some $60 million in sales, according to Gartner Inc. Another vendor, rival Open-Silicon Inc., was No. 2 and was slightly behind eSilicon in terms of overall sales, said Bryan Lewis, an analyst with Gartner.

Other fabless ASIC suppliers include eASIC, Altera, Faraday and Global Unichip. Still, the ASIC market is dominated by the IDMs, such as TI, IBM, STMicroelectronics, NEC, Freescale, Sony, Toshiba, Renesas and others, according to iSuppli Corp.

Fabless pioneer
Founded in 2000, eSilicon emerged and brought a new concept to the market: the fabless ASIC model. Prior to 2000, companies that didn't have their own fabs had two choices for the development of ASICs. Companies could work with a traditional ASIC supplier that owned a fab or they could develop a circuit by themselves.

Fabless ASIC houses offered a third alternative. They can help customers bring their ASICs to the market by providing a range of third-party services. Fabless ASIC houses also claim they can develop or manage an ASIC project at a less expensive rate than if customers did it themselves.

Today, there are fewer and fewer companies that can devise their own ASICs from scratch due to soaring design costs and complexities, Harding said. "Our theme is: 'Do-it-yourself' is dead," he said.

Harding describes eSilicon as an "aggregator" of services and said the company can manage every step of the IC development process for customers, including design, manufacturing, packaging and test. ESilicon can also get involved in various parts of the IC design process.

The company does not own a fab, but works closely with one major foundry partner: Taiwan Semiconductor Manufacturing Co. Ltd. The fabless ASIC house also has alliances with various third-party IC-assemblers, such as Amkor, ASE and SPIL. ESilicon primarily uses EDA tools from Magma.

Growing pains
Despite offering a viable alternative for ASIC customers, eSilicon has experienced its share of ups and downs. It ran into problems shortly after its inception, mainly due to the "" bust in the early part of the decade.

At the time, the bust caused a major downturn in the IC industry. "The bottom fell out," Harding recalled. "That set us back two years."

But by 2004, eSilicon's business was exploding, as the company was mainly riding the coattails of one major customer: now-defunct PortalPlayer. At the time, PortalPlayer was providing the MP3 chipset for Apple Computer Inc.'s popular iPod line.

In total, privately-held eSilicon's revenues reached $90 million in 2004. Some $60 million of those sales were attributed to its business with PortalPlayer. In 2005, eSilicon received another shot in the arm with the completion of $15 million in financing, bringing the total amount of venture funding to $86 million. Investors included Growth Capital, NIF Ventures and CrossBridge Venture Partners.

In 2006, PortalPlayerand eSiliconexperienced a major setback. Apple switched media processor chip vendors in its iPod lines, leaving PortalPlayer out in the cold. eSilicon was also impacted as well.

Since the setback, eSilicon has regained its momentum, Lewis said. "ESilicon lost one big customer, but they are rebuilding their business," he said.

Bright forecast
Harding said that eSilicon is profitable and is seeing renewed growth in the market. The company projects that its sales will hit $25 million in Q4 08. This, in turn, will give it a respectable run-rate of $100 million per year. "We're seeing 30 percent growth for the next three years," he said.

To boost its fortunes, the company is also expanding its IP portfolio. For example, eSilicon recently licensed Avago Technologies Inc.'s 90nm and 65nm embedded Serdes cores. And like before, eSilicon continues to push the leading-edge of ASIC designs. "Our strategy is to work on the most complex parts," he said.

Today, the majority of eSilicon's ASIC business is geared towards products at the 65nm node. But it is also determined to develop the industry's first ASICs at the 45nm node.

One problem for eSilicon is that chipmakers are migrating more slowly to advanced nodes due to soaring IC design costs. But the death of the ASIC business is greatly exaggerated. The number of ASIC design starts is shrinking, while the value of those parts is increasing, said Hugh Durdan, VP of marketing at eSilicon.

And ASICs remain more viable than rival FPGAs, said Harding. "The ASIC business is still a $20 billion industry," he said. "FPGAs do about $4 billion a year. The FPGA market is flat and has stalled."

- Mark LaPedus
EE Times

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